Economics plan: general information

Consuming Information: The Costs of Searching for Information on the Web
As we have seen, information can never be consumed. However, as Herbert Simon has famously noted, “What information consumes is rather obvious. It consumes the attention of its recipients. Hence, a wealth of information creates a poverty of attention.”6
By all accounts, the store of information available on the Web is growing exponentially. However, the amount of information being accessed, or “consumed,” grows linearly at best. As Varian3 has pointed out, this leads to a variant of Malthus' law, which showed that while the amount of food seemed to grow linearly, the number of stomaches grew exponentially.
The uncomfortable consequence of this “Malthus' law of information” is that the fraction of information that is actually consumed will, with time, approach zero. In this case, the limiting factor is our ability to spend time consuming information. Our attention is the scarce resource.
The consequence of this ever-expanding information marketplace for information producers is that their success is increasingly dependent on their ability to compete for the attention of information consumers. The consequences for information consumers are equally problematic. First, and obviously, the demands on our attention are increasing. At the limit, information consumption has the potential to dominate all other tasks for our attention, unless individual limits to consumption are introduced.
Equally worrying, it should, theoretically, become ever more expensive to find information. Searching for and evaluating information in particular have the potential to become increasingly expensive over time. If the amount of information is growing exponentially, then, by implication, so too should the number of documents that match any particular search. Another way of stating this is to say that, for a given amount of search effort, the probability a finding a document on the Web will decrease with time. In other words, the seemingly inevitable consequence of a global growth in information supply is actually an “information famine,” in which we cannot find what we need. The haystack just keeps growing, making it ever harder to find the needle.
The costs of searching for, evaluating, and then purchasing any good are all transaction costs. Although they may not be factored into the final price we pay for an item, they are a real part of the cost of doing business. So, while information on the Internet may become virtually free to obtain, the transaction costs in obtaining that information will not disappear. We can summarize by noting that the cost of an information transaction on the Internet is related to the amount of information placed on the Internet. Such costs are an example of a negative network effect or negative externality.
It can be seen from this that searching for information on the Web is subject to the same economic constraints that apply to searching for goods in a physical marketplace (▶). A traditional way in which consumers minimize the search costs for goods is to seek out a trusted supplier who usually delivers a high-quality product at a good price. A department store, for example, can be seen as an organization whose main value is to search for superior goods for its customers and then guarantee that they are of good quality. A store's good reputation results in consumer loyalty. Such a reputation is a valuable item in itself, since it economizes on search for customers10 and therefore can be translated into a price added to the base cost of a good.
On the Web, information consumers can similarly minimize search costs by constraining their search to known areas that produce high-quality information that usually suits their needs. Such information portals thus act like traditional department stores. Unsurprisingly, there is already fierce competition among Web portals for consumer attention and the consequent opportunity to attract what is most economically valuable to them—consumer loyalty maintained through reputation.
An issue related to the growth of information is that of information quality. If the main cost of creating and selling information online occurs at the time of production, then producers with low production costs are in a position to swamp high-quality producers. For health care there are particular implications. For example, producing high-quality evidence-based guidelines for clinicians or clear and accurate information for consumers is resource intensive. Consequently, the rate at which good-quality health information can be produced cannot match that at which poor-quality information is produced. Thus, producers of poor-quality information may be at an advantage on the Internet, where they can flood the entire information market with their product.11
Solutions to this problem of information quantity include the use of legislation to limit the ability of producers of poor-quality information to publish on the Web, but the international reach of the Internet limits the effectiveness of any single nation's efforts. Alternatively, quality labels could be used to identify information that meets a high standard.12 Many consumers solve the quality problem in the same way that they solve the search problem. They seek information from portals that seem to them to deliver good-quality information. Consequently, one of the Internet's challenges to health care is for us to find economic ways to provide sources of information on the Web that consumers trust.13 Failure to do so leaves the health information market open to opportunists who may not share the same standards for information production or the same goals for its dissemination.
Despite all our best efforts, however, over time the rigid logic of the Malthus law of information should, theoretically, swamp all the benefits to information producers of creating high-quality sites. And for consumers, it should swamp the benefits of “contracting out” information search costs to a trusted portal, labeling information, or using search agents. Information will continue to increase exponentially, but our capacity to find what we need will not.
However, as with Malthus' prediction about the production of food, advances in technology might help us avoid catastrophe in the short term (▶). If we can increase the accuracy of information search technology at a rate greater than the rate at which information grows, then we can avoid our information famine. At present, a large research effort is focused on Internet search technologies. For example, personalized search agents can not only help find information but filter it according to the likelihood that it matches a consumer's needs. An agent could do this by learning from past experience. By building a computational model based on the documents that satisfied previous search criteria, the agent over time builds up knowledge about its users needs. Since the rate-limiting step we identified is human attention—specifically, the time it takes to sift through the results of a particular search—anything that makes it easier to specify exactly what is needed will improve the situation.
In a sense, we are entering a period of an escalating technologic arms race between the production of information and our capacity to find information, and the ultimate outcome is not at all clear. However, even if improved search technology cannot change underlying economic principles, it can confer a relative advantage to individuals. When the possession of the best information is critical to an endeavor's success, then possessing a superior search technology confers an advantage over one's competitors.
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